W2 Contract Negotiation Questions

After two months of unemployment I feel like I’ve gotten to a good place where I’m in solid running for two positions. One, which was fairly difficult to be offered — is the one I’m leaning towards. Not just because it was hard to be offered it, but it has by far the most growth potential of the two positions.

However, the “better” position is a W2 Contract role. That basically means full-time without any benefits (paid days off, health, etc) except the employer’s part of SS insurance, Medicare, and unemployment insurance. So, ultimately, the W2 position needs to pay a lot more to equal what a salaried position would pay, and at this point I have no idea what they’re planning to offer, or how to go about this negotiation.

Now, normally a W2 Contract position would start with an Agency and they’d farm you out to a company. Most of what I’ve read about W2 Contracts has to do with programmers who have specialized skills that these agencies can sell for short-term contracts with high hourly rates. The agency then basically gets the programmer their job, and in exchange they make 35 – 50% on top of whatever hourly fee the contractor is making, all paid by the client. And it sounds like the client has no idea how much the contractor is making and what the agency makes of the fee they pay… which just seems like an uncomfortable client-contractor relationship. Or — does the client (ie the person who would be your boss) never find out what you make? And if that’s the case, how do you ever get promoted?

W2 Contracts often have non-compete clauses, from what I’ve read, which means you can’t get hired by the company you’re working for within x number of days after the contract is considered complete. So does that mean you screw yourself out of a potential full-time job if you chose to leave the contract? It really isn’t clear from the Internets.

The thing is, the W2 Contract makes sense for a programmer. They go in, they do their job, get a project done, move on, and have many other companies willing to hire them for short-term gigs. My position is very different, it’s in marketing, and I don’t really view it as a contract role, other than the fact it is because that’s the way big companies hire around here.

I’ve spent some time working the numbers to figure out what my last job was worth with benefits for the year, and it really is a lot on top of the salary. Getting paid holidays is nice too.

The thing is, I figure to make approx what I made at my last job on W2 contract I’d have to make at least $45 per hour (equiv in my calculations to about $60k with full benefits). But because of the responsibilities that go with the potential role, I believe the position (regardless of who is hired in it) deserves more than that. It’s a little hard to figure out my full compensation at my last gig because it was at a startup where in theory a good amount of my pay was in stock options which, if the company succeeded, would be worth a lot. Not sure how to value those in determining my pay at my last job. Additionally, this job will require a much longer commute and basically take over my life. So what is fair compensation for this? Taking myself out of the picture and just looking at the role itself, the dollar figure I come up with is a lot higher than $45/hour. Additionally, I’ve been signing short-term clients for projects and they’re paying anywhere from $50/hr to $100/hr depending on the assignment. And that’s more the range I’m looking for. I’d think the higher end of that makes sense for this company, but again, I have no idea what they are paying for this role. I managed to avoid the salary talk all through my many interviews so I’m going into these negotiations blind.

I’m speaking with a representative from the hiring agency early next week to discuss fees over the phone. I prefer salary negotiations in person. Additionally, I didn’t interview with the hiring firm, nor did they find me for the job. I was referred internally by someone within the company and have interviewed with people in the company. The agency has, thus far, just scheduled the interviews. And now I have to negotiate my rate over the phone with someone I’ve never met. Normally in negotiations I’d have a good idea of what the other person wants. In a startup it was very clear because basically ever dollar saved was another second the startup could survive, so it was about more than just salary. Here, though, what does the hiring manager want? Are they given a range to negotiate with? Do they negotiate?

Also, I’m not clear I’m offered the job yet. I am the top choice, clearly, and was told by the agent that my interviews went very well and everyone likes me. So now it’s time to talk fees. I’m nervous about what this means. I normally would let my employer put out a range first if possible, but I’m not sure if doing that this time around would hurt my chances of getting a good rate. If I understood what the agency wanted… (ie — if they get 35% of what I make on top of what I make, isn’t it in their best interest to negotiate a higher hourly fee that the client is willing to pay for — or does the agent get paid more if they are able to negotiate a lower fee? Or is there no negotiation at all?)

Anyway, if you have any insight into the W2 Contract Negotiation situation, please do let me know what you think about all this.

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3 comments

Prior to starting my own business, I worked as a contractor. I occasional take contract work now, but its more part-time, temporary project work. There was a time where benefits were offered by the agency. Times have changed. But, sometimes, agencies are willing to let you register on their benefits plan.
If you are in a position to “truly” negotiate, then provide acceptable options to the recruiter:
• A-hr (lower) rate if health care benefits and PTO are included
• B-hr (higher) rate if no benefits or PTO is offered
• C-hr (mid-range) rate if compensation can be increased after 3-6 months to compensate for having no benefits/PTO
Also, ask your recruiter/headhunter if the agency is willing to allow you to be on their insurance plan like their full-time employees, especially if the contract is 12+ months. Identify if you have alternative options. For example, are you married? If so, get on your spouse’s plan. If you need individual insurance, see what affordable insurance plans are available within your budget as an individual payee. Make sure you crunch the numbers to verify if the salary without benefits can work for you because if not, you may not be happy in the long-term, or the situation may hurt your ability to manage your finances later. Consulting can be very lucrative, but it has to be a win-win situation and you must feel like you are benefiting as equally as the client and agency are by obtaining your skillset.

Do you have the possibility of just asking the 'headhunters' a few things outright? If so, I'd ask:1. Are you able to offer me the job at this time and if so what compensation are you offering?2. At the end of the contract, if the company decides they'd like to hire me directly, do they have that option, or would I continue to be employed by you (the headhunter) if the contract is extended?You might as well see if you can negotiate the salary. Often the 'go between' company serves as a human resources department for their client. They have probably quoted the client a range for the position (so there could be wiggle room there). They've also got some wiggle room in terms of how much their markup is! Also, the client knowing how much you actually earn is always a funny question. I once worked with a client (in an entirely different field, another country etc) who complained about the rate she was charged for my services. I then discovered I was earning 1/3 of what she was paying. Interesting info, indeed.

That's a conundrum alrighty. I always lean toward something with benefits. (Though if you can afford individual insurance, it might be less of a problem. I need mental health drugs, which aren't generally covered under individual plans.) That said, you always would want to know what your contribution amount would be for those benefits. That should factor in, I'd think. I haven't really negotiated a salary before, but by and large the rule of negotiating is: He who says an amount first loses. So I would try and find out what the agency has in mind first and foremost. They may offer more than you're expecting. In which case, you'd be selling yourself short. It would probably help, in negotiating something without benefits, to have the numbers handy on what buying your own health care will cost. Then you can point to it as an explanation for needing higher pay.

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The anti-minimalist: I'm the absolute worst with money. I have a shopping addiction. That's exactly why this blog exists. HECC is not a typical personal finance blog. I started it in 2007 to hold myself accountable for binge spending, a dropping networth, and lack of overall fiscal literacy. 10 years later, had achieved a networth of over $500k. Now my goal is to hit $1M by 40. Recently married and with my first kid on the way, things are about to get... interesting. I write about the intersection of mental health and money, spending & investing, and millennial personal finance.